Ceramide is a neutral sphingolipid with a large body of data implicating it in various cell responses, especially to cytokines and stress inducers. For example, TNFalpha, Fas, heat, and chemotherapeutic agents activate pathways of ceramide metabolism, leading to ceramide accumulation. In turn, recent studies are beginning to demonstrate that ceramide formation is necessary for many of the responses to these agents, including effects on Rb dephosphorylation, caspase activation, apoptosis, and cell cycle arrest. However, a major gap in elucidating the function and role of ceramide has been the absence of well-defined direct targets for ceramide action. Our studies have led us to discover and focus on ceramide-activated protein phosphatases (CAPPs) as direct targets for ceramide action in vitro and in cells. Our preliminary results show that these serine/threonine phosphatases belong to the PP1 and PP2A families of phosphatases. These observations have led us to the following hypothesis: PP1 and PP2A are direct and physiologically relevant targets of ceramide in vitro and in cells, and that these phosphatases mediate many of the effects of agonists (eg TNFalpha) that induce ceramide formation. This hypothesis will be tested by pursuing the following specific aims: 1) To determine the biochemical mechanisms of CAPP activation by ceramide in vitro; 2) To determine the ceramide binding/interaction site in CAPP; 3) To determine the cellular regulation of CAPP by ceramide; and 4) To determine the physiological regulation of CAPPs in mediating protein de-phosphorylation. Notably, these studies will not only instruct us on how ceramide functions in cells, but they will also determine key and novel mechanisms for regulation of PP1 and PP2A and their roles in signaling and cell regulation. Overall, these studies may help establish a novel pathway of cell regulation commencing with extracellular agents leading to ceramide-dependent activation of phosphatases and to de-phosphorylation of key protein targets. These may have important implications in the study of cancer biology and therapeutics.